The Price Of Oil Is Sliding Again

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

We start the day with the price of oil dropping again, and making my call that it was a “dead cat bounce” last Friday, begin to look bang on…  Yesterday, I told you that right here, right now, the price of oil is the Big Kahuna, and has taken over as the key to market sentiment, which has become the end-all when it comes to trading. Market Sentiment that is. Fundamentals have taken a back seat, and really don’t get any prime time playing time.

That’s NOT how the markets used to trade, when things made sense, and you could look at a country’s balance sheet, and other fundamentals and make a call on which way the country’s currency might head. Now, it’s all about feely, touchy, stuff. How do you feel about that, is more what goes on now. And to me that’s disgusting. Have you seen the commercial with the guy that sees his son’s trophy and it says, “Participant”, and he says, “but we beat all those other teams. Are we going to end games with hugs now instead of handshakes?” That guy captured my whole persona about this stuff!

Well, on top of the price of oil sliding downward again, we also saw Chinese stocks plunge toward a 13-month low. And I just saw a news article on the TV that said that scientists are going to come out with a “Doomsday Clock” Oh joy!

And then there’s also the report from last Friday that was confirmed, that has a Senator calling his wife and instructing her to go to the ATM and withdraw all the cash she could.  Hey Senator, the next time you feel that it’s that important to have a stash of cash at home, you might want to issue a warning to all your voters. Oh, no, wait, that would cause a bigger problem with a run on the banks cash position. OK, so scratch that…

So, after all that, what I’m getting at is that the dollar and the currencies are mixed today, but the for the most part the dollar has the conn. Gold had a good day yesterday adding about $8, and this morning has added another $4, in the early morning trading.

I was reading a piece on gold last night that came to me from the GATA folks. And here’s a snippet that’s short-n-sweet by Hugo Salinas Price, president of the Mexican civic Association for silver. “Golds return to its traditional role will reliquify debt that is becoming unpayable, though salvaging all debt and derivatives might require a gold price as high as $50,000 per ounce”.

WOW! Mr. Salinas Price basically is calling for an enormous upward valuation of gold, due to the ongoing liquidation of the international reserves of Central Banks, and that will lead to a return of gold as the reserve currency replacing the dollar.

Now, keep in mind that this is just one person’s viewpoint, and one that’s “out there” with regard to his call on the future price of gold..  And should be viewed as that. But, IF gold were to reliquefy all the debt that’s out there, the price of the metal would have to rise significantly, I agree with that assumption. But as to how much, I have no idea, and I really don’t think it behooves anyone to say a level, for people will hold you to that level.  If you would like to read his whole spiel headlined: “the Coming Revaluation of Gold” it’s posted here.

Alrighty then, after that trip, we need to get back to reality here. And we’ll do that with tiny baby steps at first. Like a trip to the Eurozone, where the Irish posted a gain of 2.6% for Retail Sales in November (another country using an abacus to count) and a Consumer Confidence report that hit the highest level of confidence since January 2006! WOW!

I’ve highlighted the fact that Ireland used austerity measures to get their house in order, or at least looking better, and have moved on from their debt problems of a few years ago. I have to admit that I tend to forget that the land of my ancestors, is a part of the Eurozone. It just doesn’t seem to be a fit to me. But it works for them, so that’s all that matters.

Speaking of the Eurozone. European Central Bank (ECB) President, Mario Draghi, who has made a habit of throwing the euro under a bus, passed up that opportunity to do just that last night, when he gave a speech and didn’t repeat his message from last week’s ECB meeting where he said that the ECB may have to implement additional stimulus at their March meeting. So, thank goodness for the little things, eh?  Draghi didn’t use his speech to dump on the euro for once.

But apparently, euro traders were prepared for the bashing of the euro by Draghi, and had spooled up some sell orders of the currency, that when they didn’t hear anything disparaging coming from his mouth, they went ahead and entered the sell orders just for GP. UGH! Dolts, all of them!

Here’s my viewpoint on all this: the euro should remain flat for the most part until Friday when Eurozone 4th QTR CPI will print. I told you yesterday that to look for consumer inflation to inch higher, albeit still well below the 2% target that the ECB carved out.

No flip-flopping around for the euro until we get a better understanding of where CPI is headed. That is no flip-flopping around unless we see a reason to strongly buy or sell dollars… And see no reason for that to happen, I’ll stick with my viewpoint that the euro should remain flat until we get a reading on CPI.

But just because I said that, doesn’t mean a hill of beans to traders. Alrighty then, let’s just continue moving along. The Aussie dollar (A$) is on the rally tracks this morning, albeit not firmly on the tracks, but on them nonetheless. Late this afternoon, tomorrow morning for Australia, their 4th QTR CPI will print. And I expect to see their consumer inflation inch higher for the QTR. But will it be enough for the A$ traders to feel confident that the Reserve Bank of Australia (RBA) will pass up a rate cut at their next meeting, which will be next Monday, Feb 1?  The real risk here is that CPI doesn’t move higher, and if that happens, then the A$ will be for Sale.

Speaking of Central Bank Meetings… The Reserve Bank of New Zealand (RBNZ) will meet tomorrow, the 27th! And just in time for the meeting, the ratings agency, Fitch, revised their rating for New Zealand’s Outlook from stable to Positive. And Fitch also came out with their forecasts for debt.  And they look positive. Debt to GDP ratio for 2016. 1.6%, and 2017. 1%…  I really don’t see the RBNZ upsetting the applecart here at this time with a rate cut, so we’ll move along.

At the end of the week, the Bank of Japan (BOJ) will meet. And every BOJ meeting for the last six months has been prefaced with thoughts of an announcement at the meeting for additional stimulus, and this meeting is no different. But so far, the BOJ has resisted. But it’s not like they have resisted altogether regarding stimulus. They are the poster child for Central Bank stimulus.

They began attempting to stimulate their economy back in the mid-90’s…  I remember at the time talking about Japan like they were doing something that had never been done before and it would be great for them in the long run. But when the first couple of stimulus packages didn’t work, I quickly changed my tune, and have since that time been all over the BOJ and Finance Ministry for their failed stimulus packages. So, please momma no more husbands, as the song goes, and we could change the wording to: Please BOJ no more stimulus.

The Japanese yen is flat today, as traders are confused as to whether it’s a day that they should buy or sell it… (sell would be my call to order, but then that’s just me!) The Chinese renminbi was allowed to appreciate at the fixing this morning, not by much, but appreciate it did! And even with its stock market getting sold like funnel cakes at a state fair.

And with all these Central Bank meetings coming up we can’t forget the Big Kahuna of them all.. the Fed’s FOMC meets tomorrow. I went over what I thought they would be saying yesterday, so if you missed class that day, simply click this link and read yesterday’s letter in the archives: click here.

The U.S. Data Cupboard gets restocked today, but not with a lot of market moving stuff. the S&P/Case-Shiller Home Price Index for November prints today, and the National Board’s Consumer Confidence for January prints.

Did you see the rot on the Dallas area’s Manufacturing Index vine yesterday? It went from a negative -21 to a negative -34 in January! YIKES! Manufacturing for this area of the country is in deep dookie folks. We’ll also see the Richmond area Manufacturing Index today. I don’t expect this one to take one to the mid-section like the Dallas area did!

Remember when I first told you about the debt problems of Puerto Rico? And how they were going to have to default on bonds issued if things didn’t work out? For instance they weren’t allowed to file for bankruptcy in the U.S. because they aren’t officially a state of the Union.

Well, I was thinking the other day about this and wondering what was going on here. And then Ed Steer, printed an article in the NY Times, that I have here for you, and of course a snippet:

Negotiations to restructure roughly $9 billion of the debt of Puerto Rico’s power company collapsed late Friday, raising the prospect of the biggest default yet in Puerto Rico’s deepening debt crisis.

In August, Puerto Rico missed a $58 million payment on what it called “moral obligation bonds,” saying it did not have any legal obligation to make the scheduled payment on that type of debt. On Jan. 1, it defaulted on $163 million worth of payments to a low-ranking type of bond, in order to save cash to pay its highest ranking general obligation bonds. Insurers of the affected bonds have filed lawsuits, which in turn prompted Puerto Rico to intensify its pleas to take shelter in bankruptcy court, which would require an act of Congress.

Chuck again. Oh Brother! See what happens when you take on too much debt that you can’t pay back? And poor Puerto Rico, sitting there, not knowing where to turn to next.

That’s it for today. I hope you have a Tom terrific Tuesday!

Regards,

Chuck Butler
for The Daily Reckoning

P.S. Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.

The Daily Reckoning